Alvarado Hospital, LLC v. Cochran

Alvarado Hospital, LLC v. Cochran
868 F.3d 983 (Fed. Cir. 2017)
Authored by Antonio DiNizo

Statement of Facts: Prime Hospitals, an operator of inpatient hospital services under Medicare Part A, submitted payment claims to private contractors who make initial reimbursement determinations for inpatient hospital services providers. Prime Hospitals alleged that many of its claims for one-day inpatient stays (“short-stay claims”) were subjected to post-payment review and denied. Prime Hospitals appealed the denial of these short-stay claims through the Medicare appeal process, alleging the denials were part of a larger initiative to increase hospital claims denials. Prime Hospitals also claimed that, because of the increase in denials, the Center for Medicare & Medicaid Services (“CMS”) was overwhelmed by the number of hospital appeals of inpatient claim denials.

To reduce the number of appeals, CMS began offering a partial payment settlement of sixty-eight percent to health care providers in exchange for agreeing to dismiss appeals. Prime Hospitals allegedly accepted and executed a CMS settlement agreement on October 31, 2014, and claimed that CMS was contractually required to pay sixty-eight percent of Prime Hospitals’ 5,079 separate Medicare appeals—a total sum equaling $23,205,245. CMS ultimately refused to allow Prime Hospitals to participate in the settlement because CMS became aware of ongoing False Claims Act cases or investigations involving Prime Hospitals. Prime Hospitals claims the settlement agreement does not authorize CMS to exclude Prime Hospitals and filed a complaint for breach of contract, declaratory judgement, injunctive relief, and a writ of mandamus.

Procedural History: Plaintiffs-Appellants Prime Hospitals filed a complaint in the United States District Court for the Central District of California alleging CMS violated a settlement agreement. Prime Hospitals sought breach of contract, declaratory, injunctive, and mandamus relief. CMS filed a motion to dismiss on various grounds including lack of subject matter jurisdiction, and the district court denied CMS’s motion but elected to transfer the case to the Court of Federal Claims (“COFC”) because of the Tucker Act’s exclusive jurisdiction. The district court concluded that all causes of action and relief sought arose under the contract law, and were not about Medicare reimbursement law. Prime Hospitals appealed to the Federal Circuit, alleging the district court had subject matter jurisdiction and erred in transferring the case.

Questions Presented: First, does the COFC have exclusive subject matter jurisdiction under the Tucker Act, 29 U.S.C. § 1491, to adjudicate Prime Hospitals’ claim for breach of the settlement agreement? Second, does the COFC have subject matter jurisdiction over declaratory, injunctive, and mandamus relief claims that are made by inpatient service providers under the Medicare Act?

Holdings: First, the Federal Circuit held that the COFC has exclusive jurisdiction under the Tucker Act to adjudicate Prime Hospitals’ claim for breach of the settlement agreement because, though related to the Medicare Act, the settlement agreement is a separate claim and does not arise under the Medicare Act. Second, the Federal Circuit held that the COFC does not have jurisdiction over claims seeking declaratory, injunctive, and mandamus relief that are made by inpatient service providers under the Medicare Act.

Reasoning: The Federal Circuit reviewed the district court’s decision de novo under 28 U.S.C. § 1631. Transferring cases to another court is only permissible if the transferee court has subject matter jurisdiction over the claim at issue. Subject matter jurisdiction for the COFC is set forth in the Tucker Act, 28 U.S.C. § 1498(a). To establish Tucker Act jurisdiction, a plaintiff must identify a separate source of substantive law that creates a right to monetary damages against the United States. Contract law is a separate source of law compensable under the Tucker Act.

In addition to contract claims, the Supreme Court has recognized non-contractual bases for Tucker Act jurisdiction. In order for non-contractual claims to fall within the Tucker Act, the claimant must demonstrate (1) that the source of substantive law he relies on can fairly be interpreted as mandating compensation by the Federal Government; and (2) that Tucker Act jurisdiction is not preempted because the non-contractual source of substantive law has its own judicial review scheme.

The Medicare Act is a non-contractual source of substantive law that mandates compensation by the United States to private parties. The Medicare Act contains its own judicial review scheme for determining monetary damages that preempts Tucker Act jurisdiction over Medicare reimbursements. When a contract is a settlement agreement with the United States arising from a dispute under a statute that has its own judicial review scheme, the question remains whether Tucker Act jurisdiction over that contract claim is nevertheless preempted. The Supreme Court distinguishes actions on settlement agreements from actions under a law whose alleged violation gave rise to the settlement.

Basing its decision on this distinction, the Federal Circuit recognized that settlement agreements for money damages are within Tucker Act jurisdiction. Prime Hospitals’ enforcement of the settlement agreement was a separate action that did not contemplate review under the Medicare Act’s remedial scheme. While Prime Hospitals contended that the alleged settlement was brought to end its ongoing dispute with CMS, the facts at issue for Prime Hospitals’ breach claim were different from the facts underlying its reimbursement claim. Additionally, Prime Hospitals’ breach claim did not arise under the Medicare Act. In Heckler v. Ringer, 466 U.S. 602, 614–16 (1984), the Supreme Court determined that claims arise under the Medicare Act if (1) they are claims that should be paid for Medicare services; or (2) they are inextricably intertwined with the claim for benefits. The Federal Circuit found that the remedy Prime Hospitals sought failed to meet this test and did not arise under the Medicare Act. Prime Hospitals breach claim failed to satisfy prong one because it did not challenge a denial of reimbursements or seek a determination for services rendered. The claim failed to satisfy prong two because it involved separate issues and was completely separate from a substantive claim of benefits.

While Prime Hospitals’ breach claim for money damages fell outside of the Medicare Act’s remedial scheme and fell within Tucker Act jurisdiction, Prime Hospitals’ remaining claim for declaratory, injunctive and mandamus relief based on facts related to the underlying individual claims for reimbursement fell within the Medicare Act’s judicial review scheme. The Tucker Act does not generally confer jurisdiction over actions seeking declaratory or injunctive relief and none of the limited number of statutory exceptions to this rule applied to Prime Hospitals. Similarly, the COFC lacks jurisdiction to issue writs of mandamus pursuant to 28 U.S.C. § 1361. Thus, the Federal Circuit determined that the COFC did not have jurisdiction over these claims.

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